What free trade with South Korea means to Canada

OTTAWA — Prime Minister Stephen Harper’s trip to Seoul to finalize a free-trade agreement with South Korea is a milestone in Canada’s trading relationship with the rest of the world, and potentially an important springboard to other key Asian markets. Here’s what you need to know:

Why does this free-trade deal matter?

South Korea is Canada’s seventh-largest merchandise trading partner and its third-largest in Asia (after China and Japan). A free-trade agreement with Korea would be Canada’s first in East Asia, and the government considers it an important stepping-stone and template for completing trade deals with other Asian countries such as Japan.

Who are the potential winners?

The trade pact could be a boon to Canadian farmers, including pork and beef producers, who will have preferential access to a large and emerging market. Canadian agriculture exports to South Korea plummeted after the United States and European Union reached trade agreements with that country, the federal government says, so it’s important for Canada to strike an agreement too.

For consumers, it’s expected a free-trade deal would eliminate most import taxes for the vast majority of Korean goods, which should reduce prices on a range of products including electronics and Korean automobiles.

Who could lose from the deal?

Removing the 6.1-per-cent tariff on automobile imports could see Canada swamped with Korean-made brands such as Hyundai and Kia, which could hurt domestic sales for Ford, GM and Chrysler. Ford Motor Company of Canada has warned a deal could damage the auto sector, a critical industry to the national economy.

What’s the trade relationship look like now?

Two-way merchandise trade between Canada and Korea was approximately $10 billion in 2012, including Canadian merchandise exports of $3.7 billion and Canadian merchandise imports of $6.3 billion.

Canada’s top exports to South Korea include mineral fuels and oils, cereals, wood pulp, mineral ores and meat. Our top imports from South Korea include vehicles, electrical and electronic equipment, machinery, mineral fuels and oils, and iron and steel.

Ford Motor Company of Canada has highlighted data showing Canada imported 131,174 Korean-made vehicles in 2012, but exported fewer than 3,000 vehicles to South Korea. In 2013, approximately 124,000 Korean-built vehicles were imported to Canada, according to a Ford fact sheet, while 2,800 Canadian-built vehicles were exported to South Korea, for a trade deficit of $2.3 billion on autos alone.

What’s the status of the Canada-European Union trade deal? Didn’t they announce agreement on that last fall?

In October, Canada and the European Union signed an agreement-in-principle for the Canada-EU Comprehensive Economic and Trade Agreement (CETA). Once implemented, the deal will give Canadian businesses preferential access to an EU market of 500 million consumers — the largest trade agreement in Canadian history.

The agreement will eliminate 98 per cent of tariffs in the EU and Canada on the first day it takes effect, and is expected to reduce prices on consumer products. It’s considered a big win for Canadian beef and pork producers who can ship much more product, duty-free, to Europe. However, Canadian cheese producers are worried their businesses could suffer as the EU gets greater access to their supply-managed sector.

Under CETA, Canada also agreed to stronger intellectual property protection that will eventually increase the cost of pharmaceutical drugs for governments across the country. The federal government has promised to provide compensation to cheese producers adversely affected and provinces facing higher drug costs.

The text of a final trade deal must be passed by the Conservative-controlled House of Commons. The entire ratification and approval process on both sides of the Atlantic could take another year to 18 months, with CETA expected to take effect before the next federal election in 2015.

Are there other free-trade deals in the works?

Canada is pursuing trade agreements with dozens of countries, including established and emerging markets such as the Trans-Pacific Partnership (TPP), India and Japan.

The TPP — which currently includes Canada, the United States, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — represents a market of 792 million people and combined GDP of $27.5 trillion, or nearly 40 per cent of the global economy. South Korea has also expressed interest in these negotiations.

U.S. President Barack Obama and some other political leaders in the TPP had hoped to conclude negotiations by the end of 2013, but the talks continue.

Which free-trade deals has Canada recently completed?

Since taking office in 2006, the Conservative government has completed free-trade deals with several smaller economic players, including: Panama, Jordan, Colombia, Honduras, Peru and the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland).

Senior Parliament Hill reporter for the Ottawa Citizen, politics junkie, wannabe pro golfer and someone who has wordsmithed at newspapers in Ontario, Alberta and Saskatchewan. I've covered politics at... read more every level, including city hall in Ottawa and Calgary, the Alberta legislature in Edmonton and now back in Ottawa covering the Hill.View author's profile